Tinkering With Energy
is Playing With Fire: Cap and Trade Schemes are Regressive, Placing
Burdens on Low-Income Communities

by Bonner R. Cohen

Hopes for a swift and lasting economic
recovery could be dashed if Congress approves a misbegotten scheme
that two independent government agencies have concluded will
send energy prices through the roof.

The "Climate Stewardship Act of
2003" (S. 139), introduced by Senator Joe Lieberman (D-CT)
and co-sponsored by Senator John McCain (R-AZ), would address
the supposed problem of "global warming" by suppressing
America's use of energy. Similar to the Kyoto Protocol, which
the United States has rejected, the Lieberman/McCain bill would
require four key sectors of the U.S. economy - commercial, industrial,
transportation and electric power - to reduce their emissions
of carbon dioxide and other greenhouse gases to 2000 levels by
2010 and to 1990 levels by 2016.1

This would be accomplished through a
so-called "cap-and-trade" program. Under this scheme,
the government sets a mandatory cap (or limit) on total greenhouse
gas emissions and requires suppliers and users of fossil fuels
- which are the main source of carbon emissions - to hold rights
for each metric ton of carbon emissions they produced. These
rights (or allowances) are then bought or sold by the manufacturers,
power plants and other entities covered in the program. In this
way, energy use - measured in emissions - is kept within the
government-mandated cap.2

Sound complicated? It is and, even worse,
by suppressing the amount of energy that can be produced, the
Lieberman/McCain plan will inevitably lead to energy scarcity
and, thus, to higher energy prices. And the biggest losers in
this game will be those least able to afford spending more of
their hard-earned cash on such essentials of life as electricity
and transportation.

"The price increases resulting from
a carbon cap would be regressive - that is, they would place
a relatively greater burden on lower income households than on
higher income ones," concludes a report released in July
by the nonpartisan Congressional Budget Office (CBO).3 "A cap-and-trade program for carbon emissions
could impose significant costs on the economy in the form of
welfare losses," it added, with the burden "borne by
people in their role as shareholders, consumers and workers."4 According to the report, "Shifting the
Cost Burden of a Cap-and-Trade Program," a 15-percent cut
in carbon emissions could "cost the average household in
the lowest one-fifth of the income distribution about $560 a
year, or 3.3 percent of its average income."5

The CBO report's findings were echoed
by an analysis of the Lieberman/McCain bill released in June
by the Energy Information Administration (EIA). It, too, predicted
skyrocketing energy prices resulting from the cap-and-trade scheme.
According to the federal EIA, the average household's energy
bill, including the fuel cost of personal transportation, would
rise by $444 per year in 2025, or 13 percent more than what the
household would pay without the Lieberman/McCain energy-rationing
program. Over the same time, the EIA estimates that gasoline
prices would rise by 40 cents per gallon, and the cost of electricity
would surge by 46 percent.6

But even the best economic analysis cannot
capture the real-life burdens such a program would impose on
low-income Americans. Tom Mullen, president of Cleveland Catholic
Charities, told the Senate Environment and Public Works Committee
in June 2002 that dramatic increases in energy prices resulting
from the Lieberman/McCain bill and similar legislation would
have severe impacts on low-income families, especially poor children.
"The group that I have real concerns for and will be hurt
similarly by [high electricity and energy prices] is children,"
he said. "These children will suffer further loss of basic
needs as their moms are forced to make choices of whether to
pay the rent or live in a shelter; pay the heating bill or see
their child freeze; buy food or risk the availability of a hunger
center. These are not choices any senior citizen, child, or for
that matter, person in America should make."7

Fossil fuels - coal, oil and natural
gas - account for 70 percent of America's electricity and 84
percent of all the nation's energy needs.8 Any congressional
action that would jeopardize Americans' access to affordable
energy will have devastating consequences for society as a whole,
and for the poor in particular.

Those who would tinker with the supply
of energy had better take a long, hard look at the economic dislocation
caused by the recent blackout in the Northeast and Midwest. Folks
from New York City to the shores of Lake Michigan got a taste
of life is like when the supply of energy is disrupted. Given
the choice, they won't come back for seconds.

# # #

Bonner Cohen is a senior fellow
of The National Center for Public Policy Research, a Washington,
D.C. think tank. Comments may be sent to [email protected].

Footnotes:

1 "Analysis of S. 139,
the Climate Stewardship Act of 2003," Energy Information
Administration, U.S. Department of Energy, Washington, D.C, June
2003, p. 1, available at http://www.eia.doe.gov/oiaf/servicerpt/ml/pdf/sroiaf(2003)02.pdf
on August 25, 2003.